Rio struggles to sell assets to cut debt burden

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The Independent Online

Rio Tinto, the miner struggling with a $40 bn debt mountain of which about a quarter is due to be paid back in October, has shortlisted companies including buyout firms Apollo and Bain to buy its borates and talc business, which it is trying to sell for as much as $1 bn. The firms are among five on the list, including one more buyout firm, a Chinese bidder and a European company, which are undertaking due diligence and plan to make firm bids for the unit at the end of February, said sources familiar with the matter. The sale of its talc and borates business is one of several auctions the company is conducting. The London and Sydney-based miner put its engineered products and packaging units up for sale early last year. But neither has yet been sold as both processes have stalled.

Market conditions have worsened – with tumbling commodity prices as well as the credit crunch leaving buyers unable to raise debt -- since it started the sales.

Any successful sale of its businesses would be a boost for Rio, the world's No.2 miner, which is trying to reduce its near $40 billion of debt. But it will have to settle for much less than it initially hoped to get from the sales, meaning it may have to sell more core businesses such as its 30per cent stake in Escondida, the world's biggest copper mine. A spokesman for Rio declined to comment. At the heart of the company's malaise is the mammoth loan it took out in 2007 to buy rival Alcan, in an acquisition that still haunts it. At the time, the height of the credit boom, this biggest-ever loan for a UK company was granted to it on favourable terms that allowed it to bid for the Canada-based based company.

But Rio's situation soon soured when it got a hostile offer from rival BHP Billiton which took several months to fend off. This was followed by a fall in commodity prices and a tightening of the debt market. Rio is trying to cut its debt by at least $10 bn. It has said it hopes to raise $15bn from sales. Rio is also axing 14,000 jobs, cutting capital expenditures by more than half, and seeking buyers for a host of core and non-core assets after bigger rival BHP Billiton ended its $66 billion unsolicited takeover bid in November.

Paul Skinner, the chairman of Rio Tinto, is to step down amid speculation that he is set to take the same role at the oil giant BP. Mr Skinner, who has run Rio for five years, will quit after the company's annual general meeting on 20 April and be replaced by Jim Leng, who is currently head of Tata Steel Europe.

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